This article has been updated to show that BlockFi’s CEO confirmed in series of tweets the company has received a cease and desist letter from the New Jersey Office of the Attorney General.
According to a draft press release from the New Jersey Office of the Attorney General, the Bureau of Securities is planning to issue a Summary Cease and Desist Order to New Jersey-based multi-billion dollar bitcoin financial services platform BlockFi to stop offering interest-bearing accounts.
If signed, this action could be the first of its kind against crypto lending platforms that have seen rapid growth during the recent crypto bull run. Since its inception in 2017, BlockFi has raised $500 million in private funding and has a valuation of $5 billion.
The undated, unpublished draft contends that BlockFi, has been funding and facilitating its cryptocurrency lending and trading operations at least partly through the sale of unregistered securities in alleged violation of relevant securities laws. The New Jersey-based firm offers interest rates between 0.25% and 8.5% depending on the crypto asset and deposit size, in addition to a trading platform and bitcoin rewards credit card. In comparison, according to the FDIC the national average for interest in savings accounts is 0.06%, while 10-year treasury notes yield 1.19%.
The draft statement goes on to highlight how decentralized finance platforms, known in the industry as DeFi, do not offer FDIC or SIPC insurance like traditional banks and brokerages. However, while BlockFi offers similar savings and lending platforms to those that operate on top of decentralized ledgers, such as Uniswap or Compound, it is a centralized company.
In a comment provided in the document by Acting Attorney General Andrew J. Bruck, “Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey’s securities laws. No one gets a free pass simply because they’re operating in the fast-evolving cryptocurrency market. Our Bureau of Securities will be monitoring this issue closely as we work to protect investors.”
While Bitcoin and Ether are widely believed to be commodities based on SEC and CFTC comments and actions, other assets supported by BlockFi such as Chainlink and Uniswap have less clarity. If the cease and desist is eventually signed, it could be precedent-setting for how states could deal with other yet to be categorized assets.
When reached for comment, BlockFi CEO Zac Prince told Forbes, “The company has no knowledge of any impending actions with the New Jersey Attorney General’s office. We maintain great relationships with the New Jersey regulators and other state and federal regulators.”
After the story was published, Prince tweeted. “Late Monday evening BlockFi received an order from the New Jersey Bureau of Securities regarding BlockFi Interest Account (BIA) operations in the State of New Jersey…We remain fully operational for our existing clients in New Jersey.” He also noted that the order calls for BlockFi to stop accepting new BIA clients residing in New Jersey beginning July 22, 2021.